DOLLARS & SENSE: Starting saving early like Warren Buffett

By Doria Weiss

Published 4:31 pm, Saturday, August 15, 2015

Photo: THE ASSOCIATED PRESS

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In this Monday, July 13, 2015 photo, pedestrians pass a Chase Bank office tower in New York's financial center. Federal regulators on Monday, July 20, 2015 are directing the eight biggest U.S. banks to hold capital at levels above industry requirements, to cushion against unexpected losses and reduce the chances of future taxpayer bailouts. JPMorgan Chase is the only one that doesn't already meet the requirements. less

In this Monday, July 13, 2015 photo, pedestrians pass a Chase Bank office tower in New York's financial center. Federal regulators on Monday, July 20, 2015 are directing the eight biggest U.S. banks to hold ... more

Photo: THE ASSOCIATED PRESS

DOLLARS & SENSE: Starting saving early like Warren Buffett

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This week I am taking over for my father and columnist, Alan Weiss, to reach out to fellow young adults and show how investing today can lead to a wealthy future.

Billionaire investor Warren Buffett’s key to success can be traced back to his childhood. Born into a middle-class family, Buffett made it his goal to educate himself vigilantly on all aspects of business and the stock market. After reading countless books on the subjects, he bought his first stocks at age 11. His keen eye for earning, saving, and investing money starting very young enabled him to become one of the richest men in the world.

So what can we learn from this?

First, teens and young adults nowadays need to learn how to save their money. For many, the only source of financial education is their parents.

Teens need to know how much they are spending before they take their first steps into the real world. Awareness is key. Parents have many options they can introduce to their kids. These include money-saving apps such as Mint or Level that can track spending. Because teens always have their cellphones on them, this method is both efficient and easily accessible.

Another way to create awareness is to use cash and limit credit card use. Cash tends to lose its concrete value when credit cards are constantly used. Furthermore, debt can gradually rise and eventually overwhelm the spender for years to come. Without being conscience of spending, the probability of acquiring debt increases.

“The Motley Fool Investment Guide for Teens” gives a step-by-step process for how teens should begin to set themselves on the path toward a wealthy future and take advantage of time. The earlier one begins, the better.

All it takes is a small amount of money invested at a young age. Your investment will begin to accumulate gradually, and eventually the pace will accelerate as one continues to save and the money increases exponentially.

Picture this: You save $3,000 annually from age 21 to 30, and then stop. By age 60, that investment becomes $227,111, assuming a growth rate of 6 percent.

But what happens if you wait instead until age 41 to start investing? You would need to invest $9,621 per year until age 50 to end up with the same amount of money at age 60.

The 21-year-old investor had a total of $30,000 out of pocket expense. The 41-year-old, however, had a total of $96,210.

Starting early helped make Warren Buffett successful. Why not follow the same path?